Will a sustained value rally hurt ESG performance?

Interest in ESG (environmental, social & governance) investing has been building for several years now, but 2020 has proven to be a turning point in both inflows and returns.

These high returns and inflows have been questioned, however, as a large portion of ESG funds have high growth allocations, a style that has dominated markets for years and thrived during the Covid-19 pandemic.

While some of the best ESG performers have had biases towards growth stocks that doesn’t mean there are not suitable value investment options, according to Declan McAndrew, Head of Investment Research at Foster Denovo.

McAndrew said there are “plenty of value stocks” in areas of ESG risk mitigation and potentially going into some of the sustainable areas as well.

“There’s always going to be pockets of value, if you like, that are pure value investing,” he added. “If you think about the UK and, to a lesser extent Europe, they’ve lagged behind the US. But within that there are healthcare providers, industrials that are going about [sustainability] the right way, and even some smatterings of financials.”

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